Everything you need to know about SARFAESI Act 2002


India's banking and financial sector is the prime pillar of our economy. It is taking unprecedented steps to make India a strong economy and establish it on the world map. The banks and financial companies are strengthening our country by providing financial support to the people.

In some cases, borrowers who seek financial assistance from the banks fail to pay back the loan amount, causing a massive gap in the capital gained and lost in the market. The recovery of defaulting loans became an enormous issue for financial institutions and banks. To overcome this situation and to recover loans, the SARFAESI Act got constituted.

 


Let us understand this Act in detail. The main goal of this Act is to make a rapid recovery for NPAs. It also lets banks or financial organizations auction the borrowers' acquisitions if they fail in loan repayment.

What is SARFAESI Act 2002?

The Andhyarujina Committee and Narasimhan Committee I and II were the ones to construct this act. The Government of India constituted these committees to examine the banking sector reforms. These committees oversaw the changes required in the legal system.

Under their supervision and reports, a new legalization got passed for the securitization of investments and finances made by banks. It is called SARFAESI Act.

The complete form of this act stands for Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act. Banks and financial institutions can recover the loan amount by selling the assets kept as mortgages. Interested buyers buy the bank auction properties through bidding.

The SARFAESI Act 2002 allows banks and financial institutions to reduce the volume of non-performing assets (NPAs) by becoming the legal owners of mortgaged assets and selling them in the market. It is only applicable for secured loans where financial institutions ask for underlying securities in the form of pledges, mortgages, and hypothecation.

SARFAESI Act 2002: Roles and responsibilities

·         Overseeing registration and regulation of the asset reconstruction companies (ARCs) under the supervision of the Reserve Bank of India

 

·         Facilitation of the process of financial securitization of financial institutions and banks with or without implying underlying financial securities

 

·         It also promotes the seamless transfer of financial assets by ARCs regarding the acquisition of financial assets of banks via issuing debentures

 

·         It also entrusts ARCs for raising funds via the issuance of security receipts to validated or qualified buyers

 

·         Classification of borrowers’ accounts and designating them as non-performing assets (NPAs)

 

 

Prime objectives of the SARFAESI Act

Based on the roles and responsibilities of this act, the prime objectives are:

·         Efficient and well-defined path of recovering non-performing assets (NPAs) for banks and financial institutions

·         Allowing financial institutions and banks to conduct auctions for selling NPAs

The banks and financial institutions get the legal authority to sell bank auction properties and retrieve capital from the market. It allows taking possession of the assets (real estate properties) and attracting bidders/interested buyers.

Verdict

Banks and financial institutions are entitled by the SARFAESI Act 2002 to determine defaulters and take possession of the mortgaged properties. They can sell the properties via auctions to interested buyers and recover from the capital loss faster. Thus, this act protects the banks' best interest and takes care of the country's financial status.

To learn more, visit www.auctionbazaar.com.

 

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